What Is the Process of Liquidating a Company?
What Is the Process of Liquidating a Company? A Step by Step Guide
Most directors who ask about the business liquidation process are not really asking about legislation. They are asking what is going to happen to them, in what order, and how long it will take before it is over.
So this is that answer. No jargon, no hedging. Below is what actually happens from the first phone call to the day the company disappears from the register, for each of the three types of liquidation used in the UK.
If you have not yet decided which route applies to your company, it is worth first taking a few minutes to work out which route is right for your company. If you already know, read on.
One rule before we start: you cannot act as your own liquidator
In the UK, liquidation is a formal legal process that can only be carried out by a licensed insolvency practitioner. There is no version of it you can file yourself, no matter how small the company or how tidy the numbers.
That is not gatekeeping. The liquidator has statutory duties to creditors, to the court and to the Insolvency Service, and those duties are precisely what protects a cooperative director from what happens next. It is also why the very first step in every process below is a conversation rather than a form.
The Creditors’ Voluntary Liquidation process, step by step
A CVL is the process for a company that cannot pay its debts, where the directors choose to close it rather than wait for a creditor to force the issue. It is by far the most common formal liquidation in the UK, so we will take it in the most detail.
Week one: the first conversation
You speak to a licensed insolvency practitioner. This is free, confidential and carries no obligation. We look at the numbers, the pressure points and the timeline, and establish whether the company is genuinely insolvent or whether something else would serve you better. Not every conversation ends in liquidation, and it is fair to say so.
Week one to two: the board meeting
If liquidation is the right answer, the directors hold a board meeting and formally resolve that the company is insolvent and should be wound up. This is minuted. From this point the company should stop trading, stop taking deposits and stop incurring new credit.
Week two: preparing the statement of affairs
We prepare a statement of affairs, which is a full picture of what the company owns and what it owes. You will need to pull together bank statements, the sales and purchase ledgers, asset lists, lease and finance agreements, payroll records and the last set of accounts. This is usually the busiest part for a director, and it is the part we can help with most.
Week two to three: the shareholders’ resolution
Shareholders pass a special resolution to wind the company up voluntarily, which requires a 75 per cent majority by value. In most owner managed businesses the directors and the shareholders are the same people, so this is a formality.
Week two to three: the creditors’ decision procedure
Within 14 days of the shareholders’ resolution, creditors must be notified and given the chance to consider the appointment. Most CVLs now use a deemed consent procedure or an electronic vote rather than a physical meeting. Creditors can approve the nominated liquidator, or nominate their own. In practice the vast majority pass without objection.
The appointment is then advertised in The Gazette, which is the official public record.
From appointment onwards: the liquidator takes control
The moment the liquidator is appointed, the directors’ powers cease. That sounds severe, but for most directors it is the point at which the pressure lifts. Creditor calls, letters and enforcement action all redirect to us. You stop being the person everyone chases.
Months one to six: realising the assets
The liquidator collects and sells the company’s assets: stock, equipment, vehicles, debtor book, intellectual property, sometimes the business itself. Everything is sold at proper value, usually supported by an independent valuation. Directors are allowed to bid for assets, provided the price is right and the process is transparent.
Throughout: paying creditors in the statutory order
Money does not go to whoever shouts loudest. There is a fixed order of priority set by law:
Creditors with a fixed charge over specific assets, from the proceeds of those assets.
The costs and fees of the liquidation itself.
Preferential creditors, principally employees, for arrears of wages up to a statutory cap, holiday pay and unpaid pension contributions.
Secondary preferential creditors, meaning HMRC for VAT, PAYE and employee National Insurance collected but not paid over.
The prescribed part, a slice of floating charge realisations ring fenced for unsecured creditors.
Floating charge holders, typically banks and lenders.
Unsecured creditors, meaning most suppliers and trade creditors.
Shareholders, in the rare event anything remains.
Understanding this order explains a great deal about why liquidation feels the way it does, and why paying a favoured supplier shortly before liquidation causes such difficulty.
Throughout: the employee position
Employment contracts end on liquidation. Staff can claim redundancy pay, notice pay, holiday pay and unpaid wages from the National Insurance Fund via the Redundancy Payments Service, up to statutory limits. Directors who were genuinely employed by the company can sometimes claim too.
Within three months: the report on director conduct
Every liquidator is legally required to submit a report to the Insolvency Service on the conduct of everyone who was a director in the three years before liquidation. This happens in every single case. It is not a signal that anyone suspects anything.
What it does mean is that transactions in the run up matter. Selling assets cheaply to a connected party, repaying a personally guaranteed loan ahead of other creditors, or taking money out as dividends when there were no distributable profits are all things that will surface. Tell us about them early and they are usually manageable. Let us find them later and they are not.
Six to twelve months, typically: closing the case
Once the assets are realised, claims are agreed and any distribution is paid, the liquidator issues a final report to creditors and files it at Companies House. The company is dissolved roughly three months after that.
A straightforward CVL with few assets often finishes inside six to nine months. Cases with property, litigation or a complicated debtor book take longer.
The Members’ Voluntary Liquidation process, step by step
An MVL is the equivalent process for a solvent company, used when directors want to close a healthy business and extract the remaining value efficiently. The sequence is similar but the mood is entirely different.
The majority of directors sign a declaration of solvency, confirming they have reviewed the company’s position and believe it can pay all its debts, plus statutory interest, within twelve months. This is a sworn statement and should not be signed lightly.
Within five weeks of that declaration, shareholders pass a special resolution to wind the company up, again requiring 75 per cent by value.
A licensed insolvency practitioner is appointed as liquidator and the appointment is advertised in The Gazette within 14 days.
The liquidator settles any outstanding liabilities, deals with HMRC clearance, and distributes the remaining funds to shareholders. Initial distributions can often be made quickly.
The company is dissolved once the final formalities are complete.
Distributions through an MVL are generally treated as capital rather than income, which for many shareholders produces a better tax result and may open the door to Business Asset Disposal Relief. Timescales usually run from a few months to around a year, largely depending on HMRC. You can read more about the Members’ Voluntary Liquidation process on our dedicated page.
The compulsory liquidation process, step by step
This is what happens when the decision is taken out of your hands.
A creditor owed at least £750 serves a statutory demand. If it goes unpaid for 21 days, the company is presumed unable to pay its debts.
The creditor, often HMRC, presents a winding up petition at court.
The petition is advertised in The Gazette. Banks routinely freeze company accounts at this stage, which for most businesses is the point of no return.
At the hearing, if the court is satisfied the company cannot pay, it makes a winding up order.
The Official Receiver, a civil servant, becomes liquidator. Trading stops, directors lose all powers, and a private insolvency practitioner may later take over the case.
The Official Receiver realises the assets and conducts a formal investigation into director conduct, which is markedly more searching than in a voluntary process.
There is a window between the petition being presented and the hearing where things can sometimes still be turned around. It is narrow, and it closes fast.
Where strike off fits in
Strike off is not liquidation, and it is worth being clear about the difference. If a company has stopped trading, has no assets worth speaking of and owes nothing, you can apply directly to Companies House on form DS01. The fee is currently £13 online or £18 by post, and dissolution usually follows around two to three months later.
No insolvency practitioner is needed. But strike off is only available to a company that can pay what it owes. Applying for one that cannot is where directors get into real trouble, because creditors object, dissolved companies can be restored, and the Insolvency Service can investigate directors of dissolved companies just as it can those of liquidated ones.
What the process will ask of you
Whichever route applies, the liquidator will need your cooperation. That means handing over the company’s books and records, completing a questionnaire about the company’s history and trading, being available to answer questions, and being straight about anything awkward.
Directors who engage properly almost always find the process far less punishing than they feared. The ones who go quiet make it much harder for themselves.
Where to start
The business liquidation process is a great deal more orderly than it looks from the outside. It has a sequence, a timetable and a defined end point, and once you can see the shape of it, most of the fear goes.
If you are somewhere near the start of this, talk to us before you make any decisions. RCM Advisory offers a free confidential consultation with a licensed insolvency practitioner, and Richard Cacho has spent more than thirty years doing exactly this. Sometimes the conversation leads to one of the processes above. Sometimes it leads to business recovery options before liquidation instead, because the company is in better shape than the director thought.
Either way, you will finish the call knowing exactly where you stand. Arrange a free confidential consultation whenever you are ready.
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